December 20, 2017 / 6:13 AM / a year ago

Bank of Japan's record third-quarter JGB holdings cast doubt on unwinding QE

FILE PHOTO: A security guard stands at the Bank of Japan building in Tokyo, Japan, September 21, 2017. REUTERS/Toru Hanai/File Photo

TOKYO (Reuters) - The Bank of Japan’s holdings of government debt rose to a record in July-September under its quantitative easing program, which could deepen concerns its policy framework is unsustainable.

The BOJ held a record 445 trillion yen ($3.94 trillion) in government debt at the end of September, up 7.6 percent from the same period a year earlier, central bank data showed on Wednesday.

The central bank held 40.9 percent of all government debt at the end of September, also the highest on record. Insurance companies and pensions were the second-largest holders, accounting for 21.6 percent of all bonds outstanding.

The BOJ has slowed the pace of government debt purchases since it switched its policy benchmark last year in September to targeting interest rates from the size of the monetary base.

However, some economists would argue that data for the third quarter shows government debt holdings are still rising at an alarming rate, which will make it more difficult for the BOJ to unwind its massive stimulus policy.

Central bank data showed that assets held by Japanese households rose 4.7 percent in the third quarter from a year earlier to a record 1,845 trillion yen due to gains in stocks and investment trusts.

Cash, savings, and financial assets held by Japanese companies also rose 15.3 percent year-on-year in the third quarter to a record 1,207 trillion yen.

Prime Minister Shinzo Abe has repeatedly urged Japanese companies to use their large cash reserves to raise capital expenditure and wages to help boost consumption, but the data shows that companies have so far resisted these pleas.

Reporting by Stanley White and Sumio Ito; Editing by Jacqueline Wong

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